True to a pyramid scheme, the income from new investments paid older investors with the bulk going to TelexFree’s owners and cohorts. Representatives of TelexFree’s have conceded that TelexFree’s business model could not be sustained by sales of TelexFree VOIP alone. In fact, the sale of promoter memberships accounted for over 99 % of Telexfree’s income and less than one-half of one percent of TelexFree’s total revenue, or 1.3 million dollars came from the sale of about 26,300 VoIP Programs between August 2012 and March 2014.
During this period, TelexFree promised to pay Promoters returns of over $1.1 billion – nearly a thousand times the amount of revenue derived from sales of the VoIP Programs. The bottom line is that TelexFree was a pyramid scheme scam. Because it sold no product, it generated no revenue. The only income came from the sale of new promoter memberships.
The core of this passive income scam was the investment of funds in either $289.00 or $1,375.00 increments by unwitting participants commonly referred to as a “TelexFree Promoter”. A Promoter who paid $289.00 received one advertisement kit and ten VoIP Programs. A Promoter who paid $1,375.00 received five advertisement kits and fifty VoIP Programs. Over the course of the year, a Promoter who initially paid $289.00 and did nothing more than place one advertisement per day was promised a profit of at least $681.00 or a return in excess of 200%. A Promoter who initially paid $1,375.00 and did nothing more than place five advertisements per day was promised a profit of at least $3,675.00 or a return in excess of 350%.
The TelexFree pyramid scam also offered further returns through various bonus structures and membership recruitment commissions. For example, by recruiting multiple individuals, TelexFree Promoters also were promised revenue sharing bonuses of up to 3%.
Between 2013 and 2014 TelexFree had 783,771 investments of either $289.00 or $1,375.00 totaling $880,189,455.32. Even assuming only 50% of all participant investments were for $1,375.00, TelexFree would still owe $2,398,897,200.00 – a number that far exceeds TelexFree’s reported total revenues over the same period. This figure of almost $2.4 billion does not include bonuses, recruitment commissions, or revenue sharing.
TelexFree’s pyramid scheme unlawfully bilked its investors out of at least $300,000,000.00. Id. According to TelexFree Bankruptcy Trustee Darr during a Court’s hearing, assets recovered to date amount to a little over $100,250,000.00.
 As detailed in Court filings and public reporting, the total dollars stolen by TelexFree could exceed $750,000,000.00.
 As detailed in Court filings and public reporting, the total dollars stolen by TelexFree could exceed $750,000,000.00.
1. January, 2013 – The Brazilian Bureau of Consumer Protection (known as Procon), began an investigation into TelexFree. In its January 11, 2013 press release, Procon indicated that it had “detected evidence of crimes”:
The investigation initiated by civil prosecution of Consumer Protection (no. 01/2013) shows several controversial issues and possible crimes that put consumers at risk in time to accept that kind of deal.
Among the possibilities, there is a breach in the Federal Law No. 1.521/51, art. 2, according to which it is a crime:
“Obtaining or attempting to obtain illicit gains at the expense of the people or of undetermined number of people through speculation or processes fraudulent (‘snowball’, ‘chains’, ‘pichardismo’ and any other equivalent)” including Ponzi pyramid”.
There is also the possible violation of the Code of Consumer Protection (CDC), with false advertising, failure of product information and company, abuse of weakness or ignorance of consumers and conditions unreasonable disadvantage, among others.
2. Procon subsequently initiated an official complaint and notified the “State Prosecutors Office, the Minister of Finance and the Federal Police.” The Ministry of Finance, after its investigation, declared that:
The TelexFree business of selling packages of internet telephony (VoIP, its acronym in English), is not sustainable and suggests a Ponzi scheme, which is a crime against the popular economy.
That is the conclusion of the Secretariat for Economic Monitoring of the Ministry of Finance (Seae / MF) in a statement on Thursday (14).
3. As the matter processed through the Brazilian Court System, the Ministry of Finance was ordered to not issue further statements about the matter. In a blatantly misleading and deceptive act, TelexFree circulated through its affiliates the following misrepresentation of the order:
It’s official! The investigation on TelexFree has been absolved of what Behind MLM has researched and posted.
4. June 19, 2013 – The Brazilian Court in Acre issued an injunction putting “a stop to TelexFree’s business operations, including the registration of new affiliate investors, acceptance of new investments and paying any returns owed on existing affiliate investments.”
5. In addition, following a court order in Brazil by Judge Borges for Telexfree to turn over “data relating to the registration and operation of the accounts of each of the affiliates, including twelve months of retroactive data”, Telexfree claimed they had no access to registrations and tranfers accounts of the promoters of the company. This claim is in direct contention with an internet video in which Costa is surrounded by stacks of books which he claims hold the requested affiliate data.
6. 2013 – 2014 Frantic emails between TelexFree management and financial institutions painted an entirely bleak picture of continuing TelexFree financial operations. As described by one financial institution, “no US Bank or Processor . . . will accept your [TelexFree] business given that you are on month five of the Visa Chargeback monitoring program. You are one of only three merchants in the USA on month five so you are a real hot-potato as they say.”
7. Spring 2014 – TelexFree mailed 1099 (Miscellaneous Income) forms to investors. The 1099 forms were provided long after the mandated January 31, 2014 deadline, and some after the April 15, 2014 filing deadline.
8. Spring 2014 TelexFree’s former officers or employees stated to the TelexFree bankruptcy transition team that under the pre-March 2014 standard form contract, TelexFree owes its promoters over $5 billion dollars.
9. March 6, 2014 (on or about) – TelexFree executives called insider promoters to in invite only meeting at its Marlborough, Massachusetts headquarters.
10. March 9, 2014 – TelexFree changed its compensation plan, requiring Promoters to sell its VoIP product to qualify for the payments that TelexFree had previously promised to pay them.
11. April 14, 2014 – TelexFree, Inc., TelexFree, LLC and TelexFree Financial abruptly sought bankruptcy protection in Nevada under Chapter 11, admitting that they cannot meet their obligations from VoIP revenues and seeking authority to reject all its current obligations to promoters.
12. April 15, 2014 – The Enforcement Section of the Massachusetts Securities Division of the Office of the Secretary of the Commonwealth of Massachusetts commenced administrative proceedings against diverse entities. CLICK HERE FOR COPY OF THE Massachusetts Securities Division of the Office of the Secretary of the Commonwealth of Massachusetts FILING Dkt No. 2014-4.
13. April 15, 2014 – The U.S. Securities and Exchange Commission (sometimes referred to as the “SEC”) filed a civil Complaint and Jury Demand against TelexFree, Inc. and TelexFree, LLC and Merrill, Wanzeler, Labriola, Craft, Rodrigues, De La Rosa, Crosby, and Sloan, alleging violations of the Securities Act of 1933, the Securities Exchange Act of 1934, and SEC Regulations.371. The SEC requested and was granted a preliminary injunction and an order freezing assets of TelexFree. The SEC also sought disgorgement of profits and additional civil penalties.
14. April 15, 2014 – Agents of the FBI and Department of Homeland Security raided TelexFree, Inc.’s office in Marlborough, Massachusetts. During that search federal agents recovered $40 million worth of checks, including $2 million in checks written out to Katia Wanzeler.
15. April 2104 – Carlos Wanzeler secretly flees the united states with tens of millions of dollars.
16. April 15, 2014 – Agents of the Department of Homeland Security caught TelexFree Officer Joseph H. Craft while he attempting to flee the raid with about $38 million in treasury checks, and a laptop containing data that was the subject of the search warrant. Joseph H. Craft was handpicked by Wanzeler to serve as Certified Public Accountant or Chief Financial Officer for Telexfree entities. When questioned, Craft misrepresented to the federal agents he was merely a “consultant”, and claimed that the contents of his bag – the checks and computer – contained only “personal” items.
17. May 1, 2014 – The Montana Securities Commissioner filed cease and desist order against TelexFree.
18. May 9, 2014 – The United States Department of Homeland Security filed criminal proceedings against Wanzeler and Merrill for conspiracy to commit wire fraud.
19. May 9. 2- 014 – Wanzeler’s wife was held without bail following her arrest at J.F.K. Airport with cash and a one-way ticket to Brazil. Mrs. Wanzeler is now confined to her home with an ankle bracelet. Notwithstanding the arrest of his wife, and repeated requests by United States authorities to surrender, Wanzeler has steadfastly refused to return to the U.S. and remains a fugitive from justice.
20. May 15, 2014 – The New York Office of the United States Attorney is advised that Brazilian authorities refuse to return Carlos Wanzeler to face the fraud indictment in Massachusetts because the United States does not have an extradition treaty with Brazil.
21. Summer 2014 – Wanzeler has refused to voluntarily return to the United States to submit to the jurisdiction of the courts presiding over TelexFree related civil and criminal proceedings against him.
Merrill exercised significant control over the TelexFree Pyramid Ponzi Scheme. Merrill also appeared in videos posted to the internet where he promoted TelexFree as a revenue opportunity for Promoters. The following are lies Mr. Merril told to sell his scam:
1. As of March 28, 2014, the TelexFree website included a biography of Merrill, which stated that Merrill was a 1985 graduate of Westfield State University in economics.
2. As of March 28, 2013, the TelexFree website stated that Merrill is “well versed in one of the new technologies of the era (VoIP) [sic].”
3. As of April 28, 2014, the TelexFree Canadian website continued to state that Merrill is a 1985 graduate of Westfield State University in economics and “[k]nowledgeable about a new era of technology (VOIP).”
4. According to his own sworn testimony, Merrill attended Westfield State University for a mere two years, without either receiving a degree or declaring a major.
5. Merrill boasted on the TelexFree website that he had vast knowledge and experience in VOIP
6. According to his own sworn testimony, Merrill and in direct contravention to the representations of the TelexFree websites, under oath Merrill testified that he had only a basic understanding of VoIP technology.
7. Merrill further misrepresented, in a press release on March 21, 2014, that TelexFree had “been in VoIP telecommunications for more than a decade.”
8. Wanzeler served as Treasurer and a Director of TelexFree, Inc., a Manager of TelexFree, LLC, Vice President, Treasurer, and a Director of TelexFree Financial, General Partner of TelexElectric and Treasurer and Director of Telex Mobile Holdings.According to corporate filings on record with SOC, , Wanzeler has also served as the Chief Executive Officer of TelexFree, Inc.In his capacities as Officer, Director, Manager and General Partner of the foregoing interrelated companies, Wanzeler exercised significant control over TelexFree’s business operations.
9. Wanzeler has also participated in marketing TelexFree to potential investors, appearing in videos posted to the Internet in which he can be seen promoting TelexFree as a revenue opportunity for Promoters.
10. Among the other material misrepresentations made by TelexFree and its Defendant Officers include a website photograph of Merrill standing in front of a building in Marlborough, Massachusetts, with the caption “Mr. Merrill in front of the headquarters of TelexFree in the USA”,
11. TelexFree only occupied one suite that they shared with 28 other companies.
12. On April 23, 2013, in response to a request for a profit-and-loss statement issued by the SOC, TelexFree produced a document purporting to be TelexFree’s 2012 profit-and-loss statement.
13. TelexFree did not make use of usual and accepted Multi Level marketing accounting practices. For example they did not separate out income generated by sales of VoIP from income generated by other means.
14. On February 5, 2014, the SOC requested a second profit-and-loss statement from TelexFree for 2012, which TelexFree produced on February 26, 2014.
15. A comparison of these two profit-and-loss statements – each purporting to be TelexFree’s profit-and-loss statement for 2012 – reveals massive discrepancies.
16. The first statement provided by TelexFree lists Total Income for 2012 at $1,864,939.70, while the second lists Total Income for 2012 at $2,834,835.70.
17. As further examples, Agent Commission is listed at $520,582.95 in the first, versus $2,105,925.61 in the second; Total Expenses are listed as $784,899.22 in the first, versus $2,333,893.09 in the second; Net Operating Income is listed as $1,080,040.48 in the first, versus $478,251.56 in the second; and Net Income is listed as $1,066,313.39 in the first, versus $477,652.23 in the second.
18. The existence of duplicative accounting records containing egregious discrepancies is clear indicia of TelexFree’s falsification of accounting records and failure to adhere to Generally Accepted Accounting Principles (“GAAP”).
TelexFree MTD Hearing
Monday, November 2, 2015
Lawyers will argue against dismissal of certain parts of the case against the banks pay processor, licensed professionals and others.
Before District Judge Timothy S. Hillman
595 Main St
Worcester, MA 01608
Court Room 2 at 10:00 a.m. to 12:00p.m.
In Court Room 2 again from 1:00 p.m. to 5:00 p.m